TaxTMI 
TaxTMI 
2020 (6) TMI 470
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....ue in memo of appeal filed with Income-Tax Appellate Tribunal, Chennai (hereinafter called "the Tribunal") read as under:- "1. The order of the ld CIT(A) is contrary to law and facts and circumstances of the case. 2.1 The ld CIT(A) erred in deleting the disallowance effected u/s. 14A r.w.r 8D made by the AO to the tune of Rs. 4,02,500/-, holding that the disallowance cannot be made in the absence of exempt income earned during a year. 2.2 The ld CIT(A) erred in deleting the disallowance made u/s. 14A r.w.r 8D, without appreciating the fact that the assessee had investments to the tune of Rs. 8.05 crores, capable of earning exempt income, thereby attracting the provisions of Sec. 14A read with rule 8D. 2.3 The CIT(A) ought to have appreciated that the Hon'ble Bombay High Court in the case of Godrej & Boyce has held that the provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid and that the provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend ....
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....ras Radiators and Pressing Limited (2003) 129 Taxmann 709, the employees' contribution received by the employer would be income in his hands and that would be allowed as permissible deduction under clause (va) of Sec.36(1) in computing the business income u/s 28, provided the assessee credits the same to the relevant fund as per the due dates specified. 4.3 The ld CIT(A) ought to have noted that as per the decision of the Hon'ble Gujarath High Court in the case of CIT II Vs Gujarath State Road Transport Corporation, as per the definition of 'income' as per Sec.2(24)(x), any sum received by the assessee from his employees as contribution to any PF or Superannuation Fund etc., as per the Relevant Acts, is to be treated as income and the employer-assessee is eligible to claim deduction of such amount as per Explanation to Sec.36(1)(v) only when the same is credited into the relevant fund within the due dates specified under those Acts. 4.4 The ld CIT(A) failed to note that in the case of M/s Gujarath State Road Transport Corporation, the Hon'ble Gujarath High Court has clearly discussed that the Hon'ble Apex Court in the case of Alom Extrusions Limited, never had the....
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....ennai Tribunal in the case of ACIT v. M.Baskaan in I.T.A. No. No.1717/Mds/2013 dated 31.07.2014 for ay: 2009-10. 5.2 Before the Bench during the course of hearing, Ld. D.R, at the outset, placed reliance on the assessment order passed by AO and drew our attention to the provisions of Section 14A of the 1961 Act, and submitted before the Bench that disallowance of expenditure incurred in relation to earning of exempt income as was made by AO while framing assessment, ought to have been upheld by learned CIT(A) as the assessee has made investment to the tune of Rs. 8.05 crores in securities, which are capable of earning an exempt income albeit admittedly no exempt income was received by the assessee during the year under consideration. It is admitted by learned DR that no exempt income was received by the assessee during the year under consideration. The Ld. A.R on the other hand submitted that there was no exempt income earned by assessee during the year under consideration and hence, there is no question of disallowance of any expenditure being incurred in relation to earning of an exempt income by invoking provisions of Section 14A of the 1961 Act. 5.3 We have heard both the....
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.... reported in (2017) 248 Taxman 55(Mad.) has held that no disallowance of expenditure u/s 14A of the 1961 Act is warranted when there is no exempt income received by tax-payer. We have also observed that Hon'ble Delhi High Court in the case of M/s.Cheminvest Ltd., v. C.I.T reported in (2015) 378 ITR 33 (Delhi), had held that no disallowance of expenditure is warranted by invoking provisions of section 14A of the Act when no exempt income is received by the taxpayer during the year under consideration. Thus, on this short reasoning alone that no disallowance of expenditure incurred can be made by invoking provisions of Section 14A of the 1961 Act whence the tax-payer has not received any exempt income during the year under consideration, we dismiss the grounds raised by Revenue w.r.t. disallowances made u/s 14A of the 1961 Act and uphold decision of learned CIT(A) in deleting disallowance of expenditure. The Revenue fails on this issue. We order accordingly. 6. The second issue, which is agitated by Revenue before the tribunal vide Ground No. 3.1 to 3.3 raised in memo of appeal filed with tribunal, is with respect to disallowance of Rs. 8,78,08,404/- under Section 36(1)(viii) of t....
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.... balance sheet, long term loans and advances outstanding as on 31.03.2013 were to the tune of 3,320.55 crores, while short term loans and advances outstanding were to the tune of Rs. 229.49 crores, totaling to Rs. 3550.04 crores from which the assessee is receiving interest income. The A.O. further observed that out of the aforesaid amount of Rs. 3550.04 crores, only an amount of Rs. 2833.25 crores were given as housing loans to individuals in India for purchase or construction of houses for residential purposes in India, which is an eligible transaction to claim deduction u/s. 36(1)(viii) of the 1961 Act. The A.O. observed from the submissions made by the assessee before the AO, as to details of various classes of home loans sanctioned by assessee that the assessee has sanctioned following loans:- "i) Individual Home Loans: Loan provided for the purpose of construction and/or purchase of residential properties. ii) Plot loans: Loans given for the purpose of purchase of a residential plot promoted by Housing board development authorities, Registered cooperative Societies and approved layouts constructing dwelling unit thereon. iii) Repairs and renovation:....
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.... the assessee at page number 51 of annual report has certified the exposure to the real estate sector with the breakup for residential and commercial mortgages. 6.5 The A.O. restricted and allowed deductions u/s. 36(1)(viii) of the Act to housing loans, thereby the A.O. allowed deduction to the tune of Rs. 14,34,06,350/- to the assessee u/s 36(1)(viii) of the 1961 Act, as against deduction of Rs. 23,12,14,754/- claimed by the assessee u/s 36(1)(viii) of the 1961 Act, which led to the disallowance of Rs. 8,78,08,404/- of the deduction claimed by assessee u/s 36(1)(viii) of the 1961 Act, vide assessment order dated 29.03.2016 passed by AO u/s 143(3) of the 1961 Act. 7. The assessee being aggrieved by an assessment framed by AO u/s 143(3) of the 1961 Act filed first appeal with learned CIT(A) and submitted before learned CIT(A) that the assessee is in business of providing finance for housing and holds certificate of registration granted by National Housing Bank(NHB). The assessee also submitted before learned CIT(A) that as per para-2(m) of the Housing Finance Companies NHB directions, the Housing Finance Company is defined as follows: "housing finance company" means a compa....
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....thin one year should be disclosed under short term borrowings or current liabilities. Similarly all the loans and advances due within one year need to be disclosed under short term loans and advances. Copy of the relevant portion of the advisory issued under the Companies Act is enclosed. (f) Further the learned assessing officer has notionally worked out the claim under Section 36(1)(viii) without calling for the income earned under the respective heads' The assessee submitted before learned CIT(A), details of income earned under each of the activity :- S.No. Purpose of Loan Operating Income In Rs. Other Operating income In Rs. Total Revenue from Operations In Rs. A Construction 189,33,11,359 1,04,61,169 190,37,72,528 B Purchase 116,94,03,752 93,10,203 117,87,13,955 C Prosperity loan against mortgage of housing properties 49,67,31,193 36,97,789 50,04,28,982 D Commercial Loan 25,23,18,670 9,64,431 25,32,83,101 E Plot Loan 19,35,14,433 19,09,930 19,54,24,363 F Repairs Loan 2,54,18,073 78,800 2,54,96,876 Total A + B + C + D + E + F 403,06,97,480 264,....
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.... 8,78,08,404/-. I have considered facts relating to the loans advanced for housing by the appellant. I have also perused financials filed during the appellate proceedings. On perusal, I have found that AO has confined to housing loan to individuals under the head 'long term loans and advances' amounting to Rs. 2833,25,22,221/- whereas Ld.AR has taken loans and advances for housing to the tune of Rs. 3300,34,07,722/-. The difference of opinion arose with regard to short term loans and advance amounting to Rs. 229,49,37,716/- as to whether said loans are part of housing loans or not. Ld.AR says that these are long term loans advanced for the purpose of housing but classified as short term loan as per the requirements of Schedule VI of Companies Act. It seems this argument has not been accepted by the AO. On perusal of financials and submissions made by the Ld.AR, I find there is a merit in the arguments of the Ld.AR. The schedule under short term loans and advances gives a details which are as under: Short Term Loans & Advances (Secured & considered Good excepting Provision made for non performing Advances) - 31.03.2013 In Rs. 31.03.2012 In Rs. Curre....
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....earned DR before the Bench that mortgage loans are not eligible for claiming deduction u/s 36(1)(viii) of the 1961 Act and only housing loans are to be considered for computing deduction u/s 36(1)(viii) of the 1961 Act. It was also submitted by learned DR that Plot loans are also to be excluded while computing deduction u/s 36(1)(viii) of the 1961 Act. It was also submitted by learned DR that later on plot loans were converted into commercial loans as the plot owners have not constructed residential house on said plots during the stipulated period and conditions stipulated u/s 36(1)(viii) are not fulfilled. It was submitted that onus is on the assessee to segregate and exclude such plots loans which were later converted into commercial loans owing to the fact that the owners of the plot did not constructed residential houses on the said plots within prescribed stipulated period. Thus, it was prayed by learned DR that plot loans are to be excluded while allowing deduction u/s 36(1)(viii) of the 1961 Act. It was also submitted that mortgage loans be also excluded while computing deduction u/s 36(1)(viii) of the 1961 Act as these loans were not granted for construction or purchase ....
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....f the profits derived by assessee from eligible business computed under the head 'Profits and Gains of Business or Profession' and since this a deduction provision, it shall be strictly construed and onus is squarely on the assessee to prove that the deduction claimed falls within the parameters of Section 36(1)(viii) of the 1961 Act and the assessee is meeting all the requirements of the provisions of Section 36(1)(viii) of the 1961 Act and is eligible for said deduction. Any ambiguity in the provision is to be held in favour of Revenue. Reference is drawn to the decision of Constitution Bench of Hon'ble Supreme Court in the case of Commissioner of Customs (Imports) v. Dilip Kumar & Co. reported in (2018) 9 SCC 1 and decision of Hon'ble Supreme Court in the case of Ramnath & Co. v. CIT reported in (2020) 116 taxmann.com 885(SC)(refer para 17 to 20). It is profitable at this stage to refer to statutory Provision as are enshrined in Section 36(1)(viii) of the Act as it stood for relevant ay viz. ay: 2013-14, is reproduced hereunder:- " Other deductions. 36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with ....
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....he meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P ; (e) "housing finance company" means a public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes ; (f) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956) ; (g) "infrastructure facility" means- (i) an infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA, or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions as may be prescribed; (ii) an undertaking referred to in clause (ii) or clause (iii) or clause (iv) or clause (vi) of sub-section (4) of section 80-IA ; and (iii) an undertaking referred to in sub-section (10) of section 80-IB; (h) "long-term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof d....
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....o profits from business of providing long term finance for construction or purchase of houses in India for residential purposes which is wider in its import and which could include receipts other than the actual conduct of the business. The decision(s) of Hon'ble Supreme Court in the case of CIT v. Sterling Foods reported in (1999) 237 ITR 579(SC) ; Cambay Electric Supply Industrial Company Limited v. CIT reported in (1978) 113 ITR 84(SC), Pandian Chemicals Limited v. CIT reported in (2003) 262 ITR 278(SC) and Mrs. Bacha F. Guzdar v. CIT (1955) 27 ITR 1(SC) are relevant to support the aforesaid proposition of law. The provisions of Section 36(1)(viii) of the 1961 Act has also referred to Profits 'derived' and hence direct and immediate nexus of Profits and the business of providing long term finance for construction or purchase of house in India for residential purposes is to be seen. On this threshold, the decision of learned CIT(A) in allowing deduction with respect to mortgage and other loans is not correct and hence, we reverse the decision of learned CIT(A) in allowing deduction with respect to current maturities of mortgage/other loans, as these loans were not granted for con....
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.... Prosperity loan against mortgage of housing properties 49,67,31,193 36,97,789 50,04,28,982 D Commercial Loan 25,23,18,670 9,64,431 25,32,83,101 E Plot Loan 19,35,14,433 19,09,930 19,54,24,363 F Repairs Loan 2,54,18,073 78,800 2,54,96,876 Total A + B + C + D + E + F 403,06,97,480 264,22,322 405,71,19,802 The learned counsel for the assessee has claimed before us that the assessee has itself excluded prosperity loans and commercial loans and hence deduction u/s 36(1)(viii) as upheld by learned CIT(A) exclude profits derived from prosperity loans against mortgage of housing properties and commercial loans, and in our considered view the assessee is not entitled for claiming deduction u/s 36(1)(viii) of the 1961 Act with respect to profits derived from these prosperity loans against mortgage of properties as proceeds of these loans can be utilized for any purposes and it was not for the purposes of construction or purchase of house in India for residential purposes. The stand of assessee to voluntarily disallow deduction u/s 36(1)(viii) is correct and further the assessee will not be entitled for deduct....
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.... of purchase of plot or else these loans were classified by assessee as commercial loans. Thus, to this effect matter is remitted back to the file of AO for fresh determination of deduction u/s 36(1)(viii) on plot loans and the assessee is directed to produce complete details before the AO. The AO after considering the submissions of the assessee in remad proceeding shall grant deduction in accordance with our above directions/orders. Similarly, with respect to loans granted for repairs and renovation, only deduction can be granted u/s 36(1)(viii) of the 1961 Act provided renovation has led to construction of additional floors /areas and no deduction u/s 36(1)(viii) of the 1961 Act can be granted for normal repairs and renovation. The onus is on the assessee to bring on record details of loans granted, construction of additional floor/area in the existing residential properties, fresh sanction plans issued by local municipal authorities etc. to substantiate that the loans were granted/utilised for the purposes of construction of additional floors etc to the borrowers. The matter is remitted back to AO and the assessee is directed to produce all details before the AO. The AO s....
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....r the relevant P.F.Act, but admittedly the said amount stood deposited before the due date prescribed for filing of return of income u/s 139(1) of the 1961 Act, against which the assessee filed files first appeal with learned CIT(A) who was pleased to allowed deduction u/s 36(1)(va) read with Section 2(24)(x) of the 1961 Act, which issue is raised by the Revenue in Ground Nos.4.1. to 4.5 in memo of appeal filed with the tribunal. Admittedly, the assessee has not deposited a sum of _6,31,788/- being employee's contribution towards PF to the credit of employee with relevant fund within due date as was prescribed under the statute governing Provident Fund, as is required under Section 36(1)(va) read with Explanation 1 and Section 2(24)(x) of the 1961 Act, which led AO to disallow the said amount by invoking Explanation 1 to Section 36(1)(va) of the 1961 Act but the said amount admittedly stood deposited by assessee to the credit of employee with relevant fund before the time prescribed for filing of return of income u/s 139(1) of the 1961 Act. Aggrieved by an assessment framed by AO u/s 143(3) of the Act, the assessee filed first appeal with learned CIT(A) who was pleased to delete th....
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....ssue is squarely covered in favour of assessee by decision of Hon'ble Madras High Court in the case of CIT v. M/s.Industrial Security and Intelligence India Pvt. Ltd., (Tax Case Appeal No. 585 and 586 of 2015 dated 24.07.2015, for ay: 2003-04 and 2004-05) and it is also submitted by learned counsel for the assessee that the Chennai Tribunal in I.T.A. No. No.3263/Chny/2018 for ay: 2013-14 in the case of the ACIT v. M/s.SPEL Semoconductor Ltd., vide order dated 23.07.2019 has decided this issue in favour of the assessee, to which one of us namely Hon'ble Judicial Member was part of Division Bench who pronounced the said order in ITA no. 3263/Chny/2018. 10.3 We have heard rival contentions through video conferencing and perused the material on record including cited case laws. We have observed that the assessee has deposited Employee's share of Provident Fund contribution amounting to _6,31,788/- to the credit of employees with respective PF fund beyond the due date prescribed under the relevant statute governing Provident Fund, but the same was admittedly deposited before the due date of filing of return of income as is prescribed u/s 139(1) of the 1961 Act. Before proceeding furt....
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....rnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return." 10.3.2 It is by virtue of Finance Act, 1987 w.e.f. 01.04.1988, the provisions of Section 36(1)(va) read with Section 2(24)(x) of the 1961 Act were inserted, which considered employee contribution towards PF/ESI and other employees welfare funds received by employer as income of the assessee by virtue of Section 2(24)(x) of the 1961 Act and deduction thereof the employee contribution shall be allowed by virtue of Section 36(1)(va) of the 1961 Act provided the said amount stood deposited by employer to the credit of employee with relevant fund on or before the due date as prescribed under relevant statute governing PF/ESI and other employees welfare funds. The Provision of Section 43B of the 1961 Act were also amended by Finance Act, 1987 w.e.f. 1.4.1988 and as it stood at that time is reproduced hereunder: "Certain deductions to be only on actual payment. 43B. Notwithstanding anything contained in any other provisio....
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....econd proviso to Section 43B stood deleted and first poviso to Section 43B was amended so that now even any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees provided the said sum is actually paid during the previous year on or before the due date as prescribed under Section 139(1) for filing of return of income shall be allowed. The amended Section 43B, as amended by Finance Act, 2003 wef 01.04.2004, is reproduced hererunder: "[Certain deductions to be only on actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- *** *** (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, [or] *** *** shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed b....
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....ment year 2004-05. We quote hereinbelow the first proviso to section 43B of the Act after its amendment by Finance Act, 2003, which reads as under: "Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under subsection (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return." To answer the above controversy, we need to understand the Scheme of the Income-tax Act, 1961, as it existed prior to 1st April, 1984, and as it stood after 1-4-1984. "Income" has been defined under section 2(24) of the Act to include profits and gains. Under section 2(24)( x), any sum received by the assessee from his employees as contributions to provident fund/superannuation fund or any fund set up under Employees' State Insurance Act, 1948, or any other fund for welfare of such employees constituted income. This is the reason why every assessee(s) [employer(s)] was entitled....
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....stage, we also quote hereinbelow the Explanation below clause (va) of sub-section (1) of section 36: "Explanation.-For the purposes of this clause, 'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise." 7. However, the second proviso stood further amended vide Finance Act, 1989, with effect from 1-4-1989, which reads as under: "Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date." 8. On reading the above provisions, it becomes clear that the assessee(s)-employer(s) would be entitled to deduction only if the contribution st....
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....e Act, 1983, with effect from 1-4-1984, expressly commences with a non obstante clause, the underlying object being to disallow deductions claimed merely by making a Book entry based on Mercantile System of Accounting. At the same time, section 43B [main section] made it mandatory for the Department to grant deduction in computing the income under section 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act [octroi] and other Tax laws. Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the Return under the Income-tax Act [due date], the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the work....
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....vious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P.) Ltd.'s case (supra), held that the first proviso was curative in nature, hence, retrospective in operation with effect from 1-4-1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P.) Ltd.'s case (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively with effect from 1-4-1988 [when the first proviso stood inserted]. Lastly, we may point out the hardship and the invidious discrimination which would be caused ....
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....rative in nature, hence, it is retrospective and it would operate with effect from 1-4-1988 [when the first proviso came to be inserted]. For the above reasons, we find no merit in this batch of civil appeals filed by the Department which are hereby dismissed with no order as to costs. Civil Appeal No. 7755/2009 @ S.L.P. (C) No. 20581/2008 and Civil Appeal No. 7757/2009 @ S.L.P. (C) No. 18380/2009: 11. Leave granted. 12. In view of our judgment in the case of CIT v. Alom Extrusions Ltd. [Civil Appeal arising out of S.L.P. (C) No. 23851 of 2007], we set aside the impugned judgment and order of the Bombay High Court and allow these civil appeals filed by the assessees with no order as to costs." 10.3.5 It is also pertinent to reproduce at this stage the decision of Hon'ble Delhi High Court in the case of Aimil Limited(supra) wherein Hon'ble Delhi High Court interpreted the decision of Hon'ble Supreme Court to be applicable to both employer and employees contribution and in case the said amounts were deposited by employer to the credit of employees with the respective funds before the due date as prescribed u/s 139(1) of the 1961 Act, the deducti....
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....he contention of learned counsel for the Revenue that this judgment would be of no avail to the assessee while discussing the matter under section 36(1)(va) of the Act. Section 43B stipulates that certain deductions are to be given only on actual payment. Clause (b) thereof talks about contribution by the assessee as employer to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees. Since we are concerned only with clause (b), we reproduce the same for clearer understanding :- "43B. Certain deductions to be only on actual payment.-Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- ****** (b)any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or, ****** shall be allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him only in computing the income referre....
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.... provisions. 10. Ms. Prem Lata Bansal, learned counsel for the Revenue, thus, argued that the second proviso to section 43B, as it stood at the relevant time, clearly mentioned that deduction in respect of any sum referred to in clause (b) shall not be allowed unless such sum has actually been paid in cash or by issuance of cheque or draft or by any other mode on or before the due date, as defined in the Explanation below clause (va) of sub-section (1) of section 36. Thus, the assessee would earn the entitlement only if the actual payment is made before the due date specified in Explanation below clause (va) of sub-section (1) of section 36 of the Act. As per the said Explanation, 'due date' means the date by which the assessee is required, as an employer, to credit the employees' contribution to the employees' account in the relevant fund under any Act, rules, order or notification issued thereunder or under any standing order award contract of service or otherwise. 11. Before we delve into this discussion, we may take note of some more provisions of the Act. Section 2(24) of the Act enumerates different components of income. It, inter alia, stipu....
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....te of filing of the return. The disallowance is not made by the Assessing Officer on the ground that there is no proof of making such payment but disallowance is made only on the ground that these payments have been made beyond the due dates of making these payments under the respective statute. Thus, it was not an issue that the payments were not made by the assessee on the dates which have been stated to be the dates of deposits in the assessment order. If such is a factual aspect then according to latest position of law clarified by Hon'ble Supreme Court in the case of CIT v. Vinay Cement Ltd. that no disallowance could be made if the payments are made before the due date of filing the return of income. This issue came before Hon'ble Supreme Court in the case of CIT v. Vinay Cement Ltd. which was a special leave petition filed by the department against the High Court Order of 26th June, 2006 in ITA No. 2/05 and ITA No. 56/03 and ITA No. 80/03 of the High Court of Guwahati, Assam and it is order dated 7th March, 2007. A copy of the said order is placed on record. The observations of their Lordships on the issue are as under :- 'In the present case we are conc....
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....rgy Financial Exchange Ltd. [2007] 288 ITR 366 and that of the Division Bench of the Bombay High Court in the case of CIT v. Pamwi Tissues Ltd. [2008] Taxindiaonline.com 104 (TIOL) the issue requires consideration. According to us, in view of the dismissal of the Special Leave Petition in the case of Vinay Cement Ltd. (supra) by the Supreme Court by a speaking order, the submission of the learned counsel for the revenue has to be rejected at the very threshold. The reason for the same is as follows:- 9. The Gauhati High Court in the case of CIT v. George Williamson (Assam) Ltd. [2006] 284 ITR 619 dealt with the very same issue. In the said judgment the Division Bench of the Gauhati High Court noted a contrary view taken by the Kerala High Court in the case of CIT v. South India Corporation Ltd. [2000] 242 ITR 114. After noting the said judgment the fact that the amendments had been made to the provisions of section 43B of the Act by virtue of Finance Act, 2003 with effect from 1-4-2004 it agreed with the submission of the learned counsel for the assessee that by virtue of the omission of the second proviso and the omission of clauses (a), (c), (d ), (e) and (f) wi....
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.... contrary view of the Division Bench of its own Court in Synergy Financial Exchange's case (supra). The Division Bench of the Madras High Court has explained the effect of the dismissal of a special leave petition by a speaking order by relying upon the judgment of the Supreme Court in the case of Kunhayammed v. State of Kerala 119 STC 505 at page 526 in paragraph 40 and noted the following observations:- 'If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the Court. Tribunal or authority below has stood merged in the order of the Supreme Court ....
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.... also observed that Hon'ble Madras High Court in the case of CIT v. M/s.Industrial Security and Intelligence India Pvt. Ltd.(cited supra), has decided this issue in favour of the tax-payer and deduction towards employees contribution to PF/ESI was allowed provided the same is deposited to the credit of employees with respective PF/ESI funds before the due date prescribed u/s 139(1) of the 1961 Act, albeit the same was deposited after the due date as prescribed for payment under statute governing PF/ESI. The Hon'ble Madras High Court while adjudicating the aforesaid appeal in the case of Industrial Security(supra) in favour of tax-payer referred to the decision of Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Limited reported in 319 ITR 306(SC) and decision of Hon'ble Delhi High Court in the case of CIT v. Aimil Limited reported in (2010) 321 ITR 508(Del.), and Hon'ble Madras High Court held as under : 5. We find that the Tribunal has rightly relied on the decision of the Supreme Court in the case of CIT V. Alom Extrusion Ltd. reported in 319 ITR 306, whereby, the Supreme Court held that omission of second proviso to Section 43B and amendment to first proviso ....
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.... Gujarat High Court has taken a view on this issue favorable to Revenue. Our Hon'ble Jurisdictional High Court has taken a view in favour of the taxpayer and judicial discipline demands that we follow the judgment of Hon'ble Jurisdictional High Court viz. in the case of CIT v. M/s.Industrial Security and Intelligence India Pvt. Ltd.(supra), which judgment is binding on us. At this stage we would like to refer to order in writ petition passed by Single Judge of Hon'ble Madras High Court in the case of Unifac Management Services (India) Private Limited v. DCIT in WP no. 5264 of 2020, WMP No. 6461 of 2018, vide order dated 23.10.2018 (reported in (2018) 409 ITR 225(Mad.), wherein Single Judge of Hon'ble Madras High Court decided this issue in favour of Revenue. However, subsequently, the said decision of Single Judge of Hon'ble Madras High Court was challenged by the tax-payer before the Division Bench of Hon'ble Madras High Court by filing writ appeal no. 2854 of 2018 and CMP No. 23727 of 2018 and the Division Bench of Hon'ble Madras High Court was pleased to grant permission to the tax-payer to withdraw the original writ petition namely WP No. 5264 of 2018 as well writ appeal no. 28....
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....uction is possible, then that construction should be preferred to the strict legal construction. The Hon'ble Supreme Court observed that though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to literal construction. We have observed that Hon'ble Bombay High Court in the case of CIT v. Ghatge Patil Transports Limited reported in (2014) 368 ITR 749(Bom.) held that decision of Hon'ble Supreme Court in the case of Alom Extrusion(cited supra) shall apply both to employees as well employers contribution to various employees welfare funds, and if the amount towards employee's contribution to employees welfare funds is deposited before the due date prescribed for filing of return of income u/s 139(1) of the 1961 Act, the assessee would be entitled for deduction. The aforesaid decision of Hon'ble Bombay High Court in the case of Ghatge Patil Transport (supra) is reproduced hereunder: "15. In this manner, the amendment provided by Finance Act, 2003 put on par the benefit of deductions of tax, duty, cess and fee on the one h....
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....IT v. State Bank of Bikaner and Jaipur reported in (2014) 43 taxmann.com 411(Raj.) and in CIT v. Jaipur Vidyut Vitran Nigam Limited reported in (2014) 49 taxmann.com 540(Raj) has decided this issue in favour of the tax-payer. Similarly, Hon'ble Karnataka High Court and Hon'ble Himachal Pradesh High Court has decided this issue in favour of the tax-payer. However, Hon'ble Gujarat High Court has decided this issue in favour of Revenue in CIT v. Gujarat State Road Transport Corporation reported in (2014) 366 ITR 170(Guj.) ; Checkmate Facility & Electronic Solutions (P.) Ltd. v. Dy. CIT [Tax Appeal No. 1256 of 2018, dated 15-10-2018 and PCIT v. Suzlon Energy Limited reported in (2020) 115 taxmann.com 340(Guj). Thus, Hon'ble Gujarat High Court held that to get deduction towards employees contribution towards PF/ESI and other welfare funds, the employer ought to have deposited the said amount to the credit of employees with the relevant Funds on or before the due date specified in PF/ESI Act or other welfare funds, keeping in view provisions of Section 36(1)(va) read with Explanation 1 and Section 2(24)(x) of the 1961 Act. Similarly, Hon'ble Kerala High Court has also decided this issue ....
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....s account in the relevant fund or funds on or before the due date. Explanation.- for the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise". "S.43B. Certain deductions to be only on actual payment Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of - ** ** ** (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees". 8. Looking at the provisions we are definite that the Act treats employer's and employee's contribution distinctly. Sub-clause (v) of Section 36(1) speaks of a gratuity fund, wherein the employee does not contribute at all. Section 36(1)(va) speaks of the employee's contribution to a welfare fund for the benefit of employees a....
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.... the employee, of course, is the liability of the employer and so is the remittance to the fund but it does not change the essential nature of the contribution; which is of the employee. A contribution deducted from the employee's salary and paid by the employer cannot, for a moment, be termed as the employer's contribution. There is a clear distinction insofar as the contributions payable under the EPF&MP Act as also the ESI Act. The employer's contribution has to be paid by the employer himself and there is possible no deduction from the salary of the employee, whereas with respect to the employee's contribution, it has to be deducted from the salary of the employee and paid to the relevant fund. 11. The Supreme Court in Alom Extrusions Ltd.'s case (supra) as was noticed, was specifically considering the issue with respect to the employer's contribution. The Hon'ble Supreme Court noticed that prior to 1983 even a book entry made with respect to an assessee following the mercantile system of accounting, making a provision for the payment of contributions towards EPF and ESI could be claimed as a deduction. By introduction of Section 43B in the ....
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....rated under the provision. Section 43B (b) spoke of sum payable by the employer by way of contribution to a welfare fund. At that point it could be understood that the sub-clause took in both employee's and employer's contribution. The legislature then took note of the circumstance that many claim the deduction on the ground of maintaining accounts on mercantile or accrual basis and fail to discharge the liability. Hence by Finance Act 1987, clause (x) under Section 2 (24), sub-clause (va) of Section 36 (1) and the 2nd proviso to Section 43B were brought in. From that date the statute treats the employee's and employer's contribution differently. 13. Otherwise there was no requirement for bringing in a sub-clause under the definition clause of 'income' including the employee's contribution received by the employer and providing a deduction by sub-clause (va) and permitting the deduction only if that contribution is paid in accordance with the statute, which created the fund. The 2nd proviso to Section 43B then underwent a cosmetic change and later was deleted. There was also a new proviso added under Section 43B for permitting deduction on contr....
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....categoric and clear that the contribution received by the assessee from the employee alone was treated as income for the purpose of Sec. 36(1)(va) of the Act and therefore we are of the considered opinion that the assessee was entitled to get deduction for the sum received by the assessee from his employees towards contribution to the fund or funds so mentioned only if, the said amount was credited by the assessee on or before the due date to the employees account in the relevant fund as provided under Explanation 1 to Sec.36(1)(va) of the Act. According to us, so far as Sec. 43B(b) is concerned, it takes care of only the contribution payable by the employer/assessee to the respective fund. Therefore, in that circumstances, Sec. 36(1)(va) and Sec. 43B(b) operate in different fields i.e. the former takes care of employee's contribution and the latter employer's contribution. The assessee was entitled to get the benefit of deduction under Sec. 43B(b) as provided under the proviso thereto only with regard to the portion of the amount paid by the employer to the contributory fund. Such an understanding of Sec. 43B is further exemplified by the phraseology used in the p....
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....9;, the reference obviously is to "any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other funds for the welfare of employees" as found in sub-clause (b) of Section 43B, which refers only to the employer's contribution and not the employee's contribution. Employee's contribution, as has been already held by us, is covered by clause (va) of Section 36(1) and the deduction is restricted by the Explanation below it. With respect to employer's contribution, the deduction is allowable only on actual payment, as per Section 43B restricted only by the proviso as is now available in the Act, which requires payment before the filing of return. Any sum paid as employer's contribution, which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income, under sub-section (1) of Section 139, then the same would be enabled deduction. Hence, in the present case if the employer's contribution under the EPF or ESI for the financial year 2007-08 is paid after the said year but before the date of filing of the retur....
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....in India have taken a different views so far as to allowability of employee contribution to PF/ESI and other welfare funds which is deposited to the credit of employee with revenant funds beyond the time stipulated under the relevant statute applicable to PF/ESI and other funds for welfare of employees, but deposited prior to due date of filing of return of income u/s 139(1) of the 1961 Act. If we apply strict interpretation as is normally applied as there is no equity in tax laws, we have observed that the employee contribution received by an employer is treated as income under the provisions of Section 2(24)(x) of the 1961 Act, while deduction is allowed u/s 36(1)(va) read with Explanation of the amount received by an employer from employees as their contribution which stood deposited by employer to the credit of employee with relevant fund on or before the due date as is prescribed under relevant statute governing PF/ESI and other employees welfare funds. The provisions of Section 43B of the 1961 Act has a heading that certain deductions to be allowed only on actual payment basis and it starts with a non obstante clause that 'notwithstanding anything contained in any other provi....
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....F/ESI and other employees welfare funds to the credit of employee with relevant fund before due date as prescribed under relevant statute governing PF/ESI and other employees welfare fund, then at threshold itself no deduction u/s 36(1)(va) read with Explanation 1 and Section 2(24)(x) of the 1961 Act can be allowed and consequently there cannot be any question of entering further into Section 43B of the 1961 Act as the deduction at threshold level of Section 36(1)(va) of the 1961 Act is itself not available. This are the literal and strict interpretation of provisions of Section 2(24)(x) read with Section 36(1)(va) of the 1961 Act. The deduction provisions are to be strictly construed and onus is on the assessee to prove that it is entitled for deduction/ exemption as it falls within four corners of the statute. There is no equity in tax laws and exemption/deduction provisions are to be strictly construed. The decision of Constitution Bench of Hon'ble Supreme Court in the case of Commissioner of Customs (Imports) v. Dilip Kumar & Co. reported in (2018) 9 SCC 1 and decision of Hon'ble Supreme Court in the case of Ramnath & Co. v. CIT reported in (2020) 116 taxmann.com 885(SC)(ref....
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....ed that any ambiguity in a tax provision/notification must be interpreted in favour of the assessee who is claiming benefit thereunder.^14 17.1. In Dilip Kumar & Co., the Constitution Bench of this Court examined several of the past decisions including that by another Constitution Bench in CCE v. Hari Chand Shri Gopal: [2011] 1 SCC 236 as also that by a Division Bench of this Court in the case of UOI v. Wood Papers Ltd.: [1990] 4 SCC 256 wherein, the principles were stated in clear terms that the question as to whether a subject falls in the notification or in the exemption clause has to be strictly construed; and once the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the exemption clause liberally. This Court found that in Wood Papers Ltd. (supra), some of the observations in an earlier decision in the case of CCE v. Parle Exports (P) Ltd.: [1989] 1 SCC 345 were also explained with all clarity. This Court noted the enunciations in Wood Paper Ltd. with total approval as could be noticed in the following:- "46. In the judgment of the two learned Judges in Union of India v. Wood Papers Ltd.: [19....
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....bsp; ** 58. In the above passage, no doubt this Court observed that: (Parle Exports case, SCC p. 357, para 17) "17. when two views of a notification are possible, it should be construed in favour of the subject as notification is part of a fiscal enactment." This observation may appear to support the view that ambiguity in a notification for exemption must be interpreted to benefit the subject/assessee. A careful reading of the entire para, as extracted hereinabove would, however, suggest that an exception to the general rule of tax has to be construed strictly against those who invoke for their benefit. This was explained in a subsequent decision in Wood Papers Ltd. case. In para 6, it was observed as follows: (SCC p. 262) "6.... In CCE v. Parle Exports (P) Ltd., this Court while accepting that exemption clause should be construed liberally applied rigorous test for determining if expensive items like Gold Spot base or Limca base or Thums Up base were covered in the expression food products and food preparations used in Item No. 68 of First Schedule of Central Excises ....
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.... duty on specified intermediate goods as per the Central Government Notification dated 11-8-1994, if captively consumed for the manufacture of final product on the ground that the records kept by it at the recipient end would indicate its "intended use" and "substantial compliance" with procedure set out in Chapter 10 of the Central Excise Rules, 1994, for consideration? The Constitution Bench answering the said question concluded that a manufacturer qualified to seek exemption was required to comply with the preconditions for claiming exemption and therefore is not exempt or absolved from following the statutory requirements as contained in the Rules. The Constitution Bench then considered and reiterated the settled principles qua the test of construction of exemption clause, the mandatory requirements to be complied with and the distinction between the eligibility criteria with reference to the conditions which need to be strictly complied with and the conditions which need to be substantially complied with. The Constitution Bench followed the ratio in Hansraj Gordhandas case, to reiterate the law on the aspect of interpretation of exemption clause in para 29 as follows:....
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....s to be preferred, stands specifically disapproved by the Constitution Bench in Dilip Kumar & Co. (supra). It has been laid down by the Constitution Bench in no uncertain terms that exemption notification has to be interpreted strictly; the burden of proving its applicability is on the assessee; and in case of any ambiguity, the benefit thereof cannot be claimed by the subject/assessee, rather it would be interpreted in favour of the revenue. 18. It has been repeatedly emphasised on behalf of the appellant that Section 80-O of the Act is essentially an incentive provision and, therefore, needs to be interpreted and applied liberally. In this regard, we may observe that deductions, exemptions, rebates et cetera are the different species of incentives extended by the Act of 196115. In other words, incentive is a generic term and 'deduction' is one of its species; 'exemption' is another. Furthermore, Section 80-O is only one of the provisions in the Act of 1961 dealing with incentive; and even as regards the incentive for earning or saving foreign exchange, there are other provisions in the Act, including Section 80HHC, whereunder the appellant was indeed taki....
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....yond the time stipulated under the relevant statute governing PF. But, it is equally true that the Constitutional Courts viz. Hon'be High Courts and Hon'ble Supreme Court in India have powers to read down the provisions of the 1961 Act to make it workable and to avoid absurdity. On perusal of the decision of Hon'ble Supreme Court in the case of Alom Extrusion(supra), it is observed that Hon'ble Supreme Court has elaborately discussed provisions of Section 36(1)(va),2(24)(x) and amendments made by Finance Act, 2003 to Section 43B of the 1961 Act, which amendments to Section 43B of the 1961 Act were held to be retrospective in nature. The Hon'ble Supreme Court also referred in its decision in Alom Extrusion (supra) to its earlier decision in CIT v. J.H. Gotla [1985] 156 ITR 323(SC), para 10 that intention of the legislature is to be found out from the language used and if strict literal construction leads to an absurd result i.e. result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal const....